Multiple choice

A contract is valid only when there is valid consideration, but in case of contract of guarantee, no consideration passes between the bank and the guarantee. The contract is still valid because

  1. guarantor has signed the contract with his free will

  2. guarantor is a major person and contract with a major person is valid

  3. anything done for the benefit of the borrower is a sufficient consideration for the guarantor

  4. guarantor’s liability is secondary (as borrower is primarily liable) and hence, no consideration is required
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Section 127 of Contract Act 1872: Consideration for Guarantee: Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee. Your remuneration may be a part of consideration for guarantee.

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